“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” So said Adam Smith in The Wealth of Nations, and it’s as apt today as when the Scottish economist and moral philosopher took pen to paper to write his opus 240 years ago.
Certainly I was reminded of these words recently when I had cause to write to the Prime Minister Malcolm Turnbull about his initiative to boost the fintech sector. Although I am strongly supportive of this development, it’s not why I wrote the letter. Rather, it was to raise what I believe is a critical issue for this fledgling industry which, if left unresolved, will stunt its growth. Let me explain.
The micro investment/micro savings company Acorns uses a smartphone application to allow small change to be invested in exchange traded funds (ETFs). Since its exception about two months ago, it has attracted some 70,000 users, with 70 per cent under the age of 35, with a goal of one million in five years. On the evidence to date it’s an idea whose time has come.
But the success of Acorns is rattling the “big end” of town. So the large institutions are muddying the waters about the security of this application to the extent that I estimate it has cost Acorns that number of investors again.
And that’s being conservative.
Consumers are mistakenly of the belief that they are no longer protected by Australian regulations when they invest via Acorns, and that the liability protections under the terms and conditions on which they conduct their internet banking no longer apply when they enter the fintech world.
This is factually wrong, and the banks and other large financial institutions should be aware of it. Instead, they are using every opportunity to spread fear and confusion in this area. The reality is this – under the ePayments code, which all major Australian banks subscribe to, the user will not be liable for any authorised transactions because:
(a) The user expressly appoints Acorns and Yodlee (a third-party account aggregator) on their behalf only. In other words, only Acorns and Yodlee have “read only” access to the user’s bank account. They cannot effect transactions.
(b) Acorns and Yodlee protect the data using encryption and bank standard security measures.
Consequently, the user doesn’t breach the requirements of their terms or conditions for internet banking. Certainly the same fears do not exist about sharing one’s BSB and account number, but this can be more dangerous than sharing internet credentials.
Yet there has been no shortage of media comment (social and mainstream), purportedly by bank employees, saying that the user is liable for any unauthorised transactions. It’s hardly surprising that people are being discouraged from investing in these types of products when they believe the security of their financial transactions are at risk.
The prime minister has rightly identified fintech as part of making Australia the “innovative country”, and establishing the FinTech Advisory Group is a step in the right direction. Unfortunately, and as is so often the case, the “big end” of town and their representatives, dominate this group, which is why I took my concerns directly to Malcolm.
The reality is that until this issue is resolved there will be cloud hanging over fintech projects that will retard innovation in the financial services sector.
What is needed is a clear statement from the government about internet security to remove any doubts in consumers’ minds. This will then force the large institutions to properly educate their staff about the issue. Until that happens, the role that fintech can play in the federal government’s innovation strategy will be hobbled – to the detriment of consumer choice, the cost of financial services and the national economy.
George Lucas, managing director of Instreet Investment
